SHARES of Talaat Mustafa Group (TMG), Egypt's largest publicly traded real estate developer, hit bottom on Sunday after a selling wave stripped shares of 17 per cent of their value last week. The shares regained more than 8 per cent on Sunday Monday and Tuesday to reach LE6.9 per share. While the losses were triggered by a ruling last week annulling the contract of TMG's flagship project Madinaty signed between the group and the New Urban Communities Authority (NUCA), the revival came on the back of President Hosni Mubarak ordering an impartial and independent legal advisory committee be put in place to resolve the case. This came after assertions by several state officials, including Prime Minister Ahmed Nazif, that the interests of shareholders and owners of Madinaty units will be reserved with hints about the likelihood of a legislative amendment to rectify the legal status of Madinaty and similar cases. "We consider this news positive for TMG, since all these announcements point to a renewed chance of a favourable resolution to the land dispute -- not to mention a shot in the arm for its share price," noted a report issued by the local investment bank CI Capital which maintained its strong buy recommendation for the stock. EFG-Hermes, Egypt's leading investment bank, adopted a similar positive outlook on the shares with a buy recommendation. "Investors are expected to stop offloading TMG shares in light of the various scenarios offered to solve the crisis," said an EFG-Hermes report. While most analysts rule out the possibility of TMG paying extra or being fined, EFG-Hermes said that if TMG is obligated to pay a sum of money to meet the market value of the land, estimated by EFG-Hermes at LE6.7 billion over 10 years, "the target share price is forecast to hit LE9.2." However, other analysts were more conservative. HSBC downgraded TMG to neutral from an overweight slashing target price to LE7.3 instead of LE10.6. "Uncertainty will likely hurt sales and undermine land valuation," said the investment bank. Deutsche Bank, maintaining its hold recommendation for the shares, said the ruling should affect TMG stock performance as Madinaty accounts for 71 per cent of TMG's standalone enterprise value. It added that while it understands that TMG still has the opportunity to appeal in a higher court, it would take time for a final verdict on the issue as Egypt is entering an election period. The bank concluded by saying that a negative final outcome on the Madinaty dispute could result in significant down valuation to reach LE4.9. Madinaty's land bank represents around 60 per cent of TMG's total land bank and about 70 per cent of its future revenues over the coming five years. However, all the investment banks' reports issued on the group through the last three months, including those after the verdict, highlight the relatively strong fundamentals of TMG. One strong aspect of TMG is its diversified investments -- spread between real estate and hotel projects. The developer of self-sustained residential community complexes for the upper and middle classes like Al-Rabwa and Al-Rehab, the group also tapped the tourism market by holding majority stakes in three hotels managed by the Four Seasons hospitality chain. Earlier this year, TMG launched the Kempinski Nile hotel, the first boutique hotel catering to the needs of business travellers in downtown Cairo, increasing the group's total room capacity to 875 rooms, in addition to 1,725 rooms currently under construction. TMG has a long-term plan to expand its hotel room capacity to 5,000 rooms within five years. This will diversify the company's revenue streams and reduce its overall risk profile. Another of the group's points of strength is that its total debt is equivalent to four per cent of its total assets at the end of June, with debt to equity ratio of 1:12x, "a low level that will allow the company to acquire financing when necessary," according to CI Capital. The group's second quarter results showed a 5.6 per cent increase year-on- year in its profits to reach LE338 million. Sales recorded a 17.4 per cent rise. However, the sales of real estate units (both new reservations and contracts) fell 17 per cent compared to the previous quarter. According to CI Capital, this was not the result of the initial Madinaty court ruling that came only eight days before the quarter ended.
